Morning report

Strong US retail sales

17-Oct-2011
US September retail sales were a positive surprise, but American consumers have become more pessimistic this month. Finance ministers and central bank governors from G20 countries state that they expect a comprehensive debt crisis plan on Sunday. Long government bond yields in "safe countries" rose during Friday's session, as did international stock markets. The rise has continued in Asian markets today. Increased risk willingness has weakened safe havens, which is also reflected in FX markets. The euro has strengthened against the dollar and the scandies have strengthened, while the yen and the Swiss Franc have weakened. The news that US retail sales increased by 1.1% m/m in September (expected 0.7%) contributed to the positive sentiment. Core sales (excluding cars) increased by 0.6% m/m, the double of what was expected. Also, revision showed a 0.4% m/m rise in sales in August, instead of the flat development which was originally reported. Note these are value numbers, and hence some of the surprise may be due to stronger-than-expected price growth. However: Consumption growth may be about 2% (annualized) in Q3, which should reduce speculations that the US economy is experiencing another recession. Unfortunately, the Michigan consumer sentiment index reveals that consumers have become more pessimistic in October. The preliminary estimate was 57.7, down from 59.4 in September. The decline from 71.5 in June reflects the stock market plunge and a disappointingly weak labor market. Luckily, the index has showed poor correlation with actual spending throughout the financial crisis. The risk-on sentiment was also spurred by the belief in an approaching solution to the European debt crisis, a topic which is likely to dominate this week's markets as well. The wording in the statement from the meeting between financial ministers and central bank governors in G20 on Saturday was unusually direct: "We look forward to () the outcome of the European Council on October 23 to decisively address the current challenges through a comprehensive plan." The statement contributed to strengthening investors' belief that a convincing plan, including the write-down of Greek debt and a recapitalization of European banks, will be launched on Sunday. According to Reuters there are speculations that the EFSF fund may converted into being an insurance fund for European banks, covering the first 20 per cents of a bank's losses on government debt, to increase its firepower. This week's most important Norwegian event will be Wednesday's interest rate meeting, featuring another Monetary Policy Report, and hence: a new interest rate path. The governor's hiking plans were cancelled already after one and a half months after the release of the previous report, and Mr Olsen has expressed substantial uncertainty regarding the interest rate setting throughout the autumn. The market pricing has for a long time indicated cuts, while many analysts have asserted that the key policy rate will be left unchanged at 2.25% throughout 2012. We are convinced that the new interest rate path will be far flatter than the June path, and expect it to indicate that the next move is up, either in March or in May. US consumer price inflation has surprised on the upside lately, which makes the Fed's assessments on whether to provide further monetary easing more difficult (especially regarding another round of asset purchases). Core inflation rose to 2.0% in August, and is expected to edge up to 2.1% when September numbers are released on Wednesday. On the other side of the world, Chinese Q3 GDP is released tomorrow. The national accounts are released only a fortnight after the end of the quarter, a speed that makes us highly skeptical about the quality of the statistics. Annual growth is expected to edge down from 9.5% in Q2 to 9.2% in Q3. "Europe's most important index", the IFO index, is released on Friday, and will give us an important signal regarding the momentum in the euro area's dominant economy. Despite the recent declines, it is still well above its historical average and expectations point to an only marginal decline in October. kjersti.haugland@dnbnor.no Friday's 12:30 12:30 13:55 Todays 12:30 13:15 02:00 key economic events (GMT) USA Personal cons. ex autos USA Personal consumption USA Michigan cons. confidence key economic events (GMT) USA Empire state (NY Fed) USA Industrial production China GDP As of Sep Sep okt As of Oct Sep Q3 Unit M/m % M/m % Index Unit Index m/m % q/q % Prior 0.5r 0.4r 59.4 Prior -8.8 0.2 2.2 Poll Actual 0.3 0.6 0.7 1.1 60.2 57.5 Poll DnB NOR -4.0 0.2 2.1

NOK & 3m NIBOR

8.00 7.80 7.60 7.40 6-Sep 26-Sep 3m ra. 3.20 3.10 3.00 2.90 14-Oct EURNOK

SEK & 3m STIBOR

9.4 9.3 9.2 9.1 9.0 8.9 6-Sep 2.60 2.55 2.50 2.45 14-Oct EURSEK

26-Sep

3m ra.
Headquarters 0021 Oslo Stranden 21 Offices Abroad New York London Shanghai Singapore Stockholm Sales Oslo (+47) Equity Fixed Income FX/IR Regional sales (+47) Bergen Bod Fredrikstad Hamar Haugesund Lillehammer Kristiansand Oslo Stavanger Troms Trondheim Tnsberg lesund +47 03000

+1 212 681 3800 +44 207 6211111 +86 21 6132 2888 +65 6220 6144 +46 8 4734850 22 94 89 40 22 01 78 20 22 01 76 50 55 75 69 61 52 61 38 22 51 77 73 33 73 21 55 39 05 72 27 07 01 84 62 58 37 84 95 87 41 14 09 32 28 76 04 96 74 13 60 80 60 50 69 06 27 62 50 30 80 89 00 09

Research Regional Sales (+47) Eirik Larsen 22 01 76 55 Research FX/IR (+47) ystein Drum Kjersti Haugland Ole Andr Kjennerud Knut A. Magnussen Maren Romstad Camilla Viland Kyrre Aamdal Credit Research (+47) Ole Einar Stokstad Mikael L. Gjerding se Haagensen Rolv Kristian Heitmann Thomas Larsen Knut Olav Rnningen 22 22 22 22 22 22 22 22 22 22 22 22 22 01 01 01 01 01 01 01 01 01 01 01 01 01 76 78 78 76 76 77 76 78 77 76 76 77 78 56 03 24 63 64 41 67 37 62 93 77 36 15

17-Oct-2011

Morning report

Oil spot & NOK TWI

125 120 115 110 105 100 6-Sep 26-Sep NOK TWI ra. 100 98 96 94 14-Oct $/b

SPOT RATES AND FORECASTS (Source: Reuters and DnB NOR Markets)
FX USDJPY EURUSD EURGBP EURCHF EURNOK EURSEK EURDKK USDNOK JPYNOK SEKNOK GBPNOK USDSEK JPYSEK NOKSEK GBPSEK Prior 77.25 1.388 0.878 1.238 7.726 9.154 7.446 5.570 7.215 0.845 8.823 6.601 8.551 1.187 10.438 Last 77.12 1.388 0.878 1.239 7.713 9.131 7.445 5.560 7.210 0.846 8.795 6.583 8.539 1.184 10.410 % -0.2% 0.0% 0.0% 0.1% -0.2% -0.2% 0.0% -0.2% -0.1% 0.2% -0.3% -0.3% -0.1% -0.2% -0.3% In 1 m ...3 m 80 80 1.35 1.35 0.86 0.86 1.20 1.20 8.00 7.80 9.30 9.10 7.45 7.45 5.93 7.41 0.86 9.3 6.89 5.51 1.16 10.81 5.78 7.22 0.86 9.1 6.74 5.39 1.17 10.58 ...6 m ...12 m 80 90 1.30 1.25 0.84 0.82 1.20 1.25 7.70 7.70 9.00 9.00 7.45 7.45 5.92 6.16 7.40 6.84 0.86 0.86 9.2 9.4 6.92 7.20 5.54 6.48 1.17 1.17 10.71 10.98 FX AUD CAD CHF CZK DKK GBP HKD ISK KWD LTL LVL NZD PLN SGD RUB USD 1.0322 1.0082 0.8933 17.83 5.3675 1.5818 7.7779 115.28 0.2760 2.4888 0.5087 0.8037 3.0832 1.2627 30.7475 % -0.24% -0.18% 0.17% -0.02% -0.05% -0.03% 0.00% 0.03% 0.27% 0.02% -0.10% -0.26% -0.55% -0.24% -0.43%

EUR vs GBP & CHF

1.25 1.20 1.15 1.10 6-Sep 26-Sep GBP r.a 0.89 0.88 0.87 0.86 0.85 14-Oct CHF

Gov. Bonds, 10y

2.25 2.00 1.75 1.50 6-Sep 26-Sep NOK, ra. 3.00 2.80 2.60 2.40 2.20 2.00 14-Oct SEK

1m 3m 6m 12m 3y 5y 7y 10y

SWAP AND MONE YM ARKET RATES (Source: Reuters) NIBOR STIBOR EURIBOR Prior Last Prior Last Prior Las t 2.85 2.87 2.32 2.32 1.30 1.31 3.08 3.09 2.52 2.52 1.50 1.51 3.31 3.30 2.53 2.53 1.72 1.72 3.49 3.47 2.58 2.59 1.88 1.88 3.14 3.15 2.19 2.22 1.81 1.77 3.49 3.50 2.44 2.46 2.19 2.19 3.71 3.73 2.62 2.64 2.48 2.51 3.90 3.92 2.71 2.73 2.78 2.82 GOVE RNMENT BONDS (Source: Reuters) NORWAY SWEDEN GERMANY Prior 112.4 2.77 0.58 Last 108.20 2.76 0.52

USD LIBOR P rior 0.24 0.40 0.59 0.74 0.86 1.45 1.97 2.42 US

Last 0.24 0.40 0.59 0.75 0.88 1.48 2.00 2.45

JPY and DowJones

12 11 10 6-Sep 26-Sep USDJPY ra. DowJones, 1000 78 77 76 14-Oct

10y 10y yield vs bund

In 3m 6m 12m

NORWAY 3m nibor 10y swap 3.05 4.25 3.20 4.50 3.50 4.50

Prior Last Prior Las t P rior Last 114.264 114.25 100.374 100.05 98.890625 98.66 2.01 2.00 2.19 2.24 2.25 2.29 -0.18 -0.25 0.06 0.05 INTEREST RATE FORECASTS SWEDEN GERMANY US 3m s tibor 10y swap 3m euribor 10y swap 3m libor 10y swap 2.50 3.00 1.50 3.00 0.35 3.00 2.75 3.25 1.50 3.25 0.35 3.25 2.90 3.25 1.50 3.25 0.35 3.25

2000 1900 1800 1700 1600 1500 6-Sep

USD and gold

26-Sep

1.42 1.40 1.38 1.36 1.34 1.32 14-Oct Gold

EURUSD ra.

EURSEK & OMXS

9.4 9.2 9.0 8.8 6-Sep 26-Sep OMXS ra. 450 430 410 390 370 350 14-Oct EURSEK

FRA NOK DEC MAR JUN SEP FRA SEK DEC MAR JUN SEP

3m 2.90 2.65 2.60 2.60 3m 2.31 2.05 1.97 1.95

Prior 2.90 2.67 2.61 2.61 Prior 2.32 2.04 1.95 1.96

chg 0.00 -0.02 -0.01 -0.01 chg 0.00 0.00 0.02 -0.01

TWI NOK SEK EUR USD GBP Comm. Brent spot Brent 1m Spot gold

Today 96.49 120.31 108.00 76.59 79.10 Today 115.3 112.6 1678.0

% 0.13 0.31 0.03 0.03 0.00 Last 115.3 114.7 1678.0

Stock ex. Today Dow Jones 11,644.5 Nasdaq 2,667.9 FTSE100 5,466.4 Eurostoxx50 2,355.5 Dax 5,967.2 Nikkei225 8,879.6 Oslo 370.35 Stockholm 436.24 459.43 Copenhagen

% 1.4% 1.8% 1.2% 1.0% 0.9% 0.0% 2.8% 2.2% 0.1%

Morning report
17-Oct-2011
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